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Money manager Jeff Mo says he isn’t in the market forecast business. So, instead of buying stocks based on short-term predictions, the portfolio manager at Mawer Investment Management Ltd. in Calgary looks for all-weather companies he believes will still be standing years from now.
“Our motto at Mawer is, ‘Prepare, don’t predict,’” says Mr. Mo, who manages about $3.1-billion of the firm’s $86-billion in assets including Mawer U.S. Mid Cap Equity Fund and Mawer New Canada Fund.
The A Series of Mawer New Canada Fund has returned 7 per cent over the past 12 months. Its three-year annualized return is 3.3 per cent and its five-year annualized return is 8.4 per cent. The A Series of Mawer U.S. Mid Cap Equity Fund, launched in September 2021, has returned 9.6 per cent during the past 12 months. All performance data are based on total returns and net of fees as of Nov. 30.
The Globe and Mail spoke recently with Mr. Mo about what he’s been buying and selling, focusing on Mawer U.S. Mid Cap Equity Fund.
Describe your investing style.
We follow a ‘bottom-up’ investment style, focused primarily on stock picking. Typically, bottom-up investors are divided between value, GARP (growth at a reasonable price) and growth. We’re open to all of those styles. Our focus is on wealth-creating companies, which to us are those earning a return on their investment and that have a sustainable competitive advantage. We’re focused on trying to understand how strong and long-lasting that competitive advantage will be. We also want to invest with excellent managers and to buy companies at a discount to their intrinsic [or perceived] value.
What have you been buying?
One stock we’ve been adding to the portfolio in recent weeks is Fleetcor Technologies Inc. FLT-N. It’s a payment processor that started its own ‘closed-loop’ payment network for fuelling vehicle fleets. It has also diversified into other fast-growing niches such as business-to-business, toll and lodging payments. It’s a leader in many markets in which it does business, is highly profitable and has a high return on invested capital. So, it checks all the boxes for us. We’ve owned it in our U.S. fund since its inception in 2021.
A new buy for us, as of early this fall, is Ulta Beauty Inc. ULTA-Q, a large specialty beauty retailer. The stock had been declining amid fears of decreased consumer spending, but we thought the valuation was attractive. The company has captured a high market share of premium products and has a competitive advantage because of its welcoming store environment and distribution deals with various brands. We started buying the stock in early October and late November, and it has increased significantly since.
What have you been selling?
Xpel Inc. XPEL-Q is one company we sold in late summer this year. It’s the leading provider of aftermarket paint protection products for the automotive industry. The company claims it has about a third of the global market share for its products. Recently, Tesla Inc. announced it would offer its customers a paint protection film as an option at the point of purchase, effectively cutting out the need for aftermarket products for Tesla vehicles. When we did some research, it sounded like Tesla was a big Xpel customer. We reached out to Xpel management to get more information and felt it was underplaying the company’s Tesla exposure. So, that risk combined with a loss of trust in management led us to exit the stock.
Another stock we sold in mid-November was PC Connection Inc. CNXN-Q, one of the largest resellers of information technology hardware and software in the U.S. It’s still a decent company, but the valuation got too high for us. We see it as an example of the market getting overly exuberant about a soft landing.
Name a stock you wished you bought or didn’t sell.
A stock we wish we didn’t sell is Comfort Systems USA Inc. FIX-N, which installs heating, ventilation, and air conditioning systems in commercial buildings. We bought the company in the late summer of 2021 and sold it in the early summer of 2022. We exited the company because we felt inflation was hurting its margins and were skeptical that non-residential construction would continue at the same pace. But the company has been able to pass its higher costs on to customers, and margins have held up well. The stock has doubled since we sold it and is trading near its all-time high.
What advice do you have for new investors?
Think long-term. It’s almost a 50-50 coin flip as to whether the market is going up or down the next day, but more than a 90 per cent probability that markets will be up over 10 years. Also, avoid buying individual stocks unless you genuinely are interested in doing your own research and enjoy it – or you’re paid to do it because you’re a professional investor.
This interview has been edited and condensed.
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